I'm a strategist for bestselling authors and billion dollar brands like American Apparel, Tucker Max and Robert Greene. My work has been used as case studies by Twitter, YouTube and Google and has been written about in AdAge, the New York Times, Gawker and Fast Company.

Long before GM pulled its $10M in advertising from Facebook, I lost my faith in the platform. As an online media buyer for American Apparel, I had cut the majority of my spend each month for the preceding 12 months. From the time that Facebook stopped serving banner ads through Microsoft to now, the spend I oversaw fell from nearly $1M per year to a few thousand dollars a month.

As I told Direct Marketing News in March 2012: “The return is not there. Unless you’re selling apps or lead generation, I think Facebook ads are underwhelming. I see bad things ahead for the Facebook IPO and perhaps, rising dissatisfaction among clients.”

This sentiment came from my personal experience—particularly with sketchy new offerings like the “Sponsored Story” platform which essentially charges popular fan pages a premium CPM to reach their own fans in the Facebook feed (translation: FB, who controls how much or little fans see your updates, is charging to “improve” your chances of being seen). But mostly, it came from entrepreneur Joseph Perla‘s eye opening essay “Facebook is a Ponzi Scheme” in January 2011. This prescient essay outlines all the current IPO-related criticism of Facebook and it did it way before anyone else.

Perla has allowed me to repost that article. Read it before you considering buying shares, and more importantly, before spending ad dollars. And Zuckerberg, if you’re reading, it’s time to build an ad platform that actually works for real advertisers.

Facebook posts huge revenues. In fact, recent reports are that Facebook is very profitable. This boosts both their respect in the world and their valuation. However, these returns, while real, are unsustainable. They exist and are sustained in the same manner that Ponzi schemes are. Facebook is a Ponzi Scheme.

Have you ever bought a Facebook ad? I have. I have talked to many, many people who have. We have spent hundreds, many have spent thousands or even more, experimenting with Facebook ads. They are worthless. Nobody ever looks at them, and nobody ever clicks on them. I just talked to someone who was trying to promote a book. He found it cost him over $100 in ads to sell one book. Moreover, as you increase your ad spending, people get used to the ads and just ignore them. So, your already low click-through rate plummets even further.

People go to Facebook to interact with their friends. It is fundamentally different from the ad platform that is Google. People go to Google to find something they need, possibly ready to buy, which a good percentage of the time can in fact be solved by someone’s ad. Facebook ads, on the other hand, annoy users. They yield no real value, and thus no profits.

But, then, how is Facebook so profitable? Are they lying? No. They are growing. More and more people sign up to Facebook, and more and more businesses hear about how many people are on Facebook. It seems like a huge opportunity. TV shows and award-winning movies are made about Facebook.

Because of Facebook’s presumed success, many small, medium, and large businesses individually and in turn experiment with Facebook ads. They spend hundreds or thousands or more on Facebook ads. At the end of the first run, they see bad ROIs. They tweak the ads and spend more money and try again. Nothing. So they stop, understanding that Facebook ads are worthless. Almost everyone I’ve talked to who has actually bought Facebook ads knows this. But, not everyone has bought Facebook ads yet. There are still more and more new businesses finding out about Facebook ads. As they grow, even more businesses give their money to experiment in destined failure.

Eventually, though, and this might take a long time, but it is finite, everyone will have tried Facebook ads and know that they are useless. Eventually, after 10 million businesses have invested $1000 each, and Facebook has earned $10 billion in revenue in total, then they will have run out of new customers and their revenue will dry up. A useless product is never sustainable. I wish I could short Facebook.

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I consider FB ads for commerce and FB ads to drive fans to be separate things for the most part. The latter does work better than the former (and of course it should, as FB benefits more from one than the other)

American Apparel is negatively known for UNcreative, boring, and sleazy ads that basically mimic PORN — rather than using a creative, delightful approach to getting positive attention via advertising (such as creative, whimsical, memorable Target ads) !!

This article is quick to devalue the potential that Facebook has to maintain substantial internet presence. Yes, at the moment it is difficult to encourage users to click on ads, but I think this is something that Facebook is aware and probably will find a solution to. It’s either do something or die. The selling of credits and premium services might be an avenue that Facebook could venture into.

The problem is not all Facebook, while I 100% agree with and commend your recognition that they annoy users. The problem is mostly poor marketing tact. Historically, television ads have worked because the advertisements were obscenely annoying and nonstop. When people figured out their cable bill was just an $80/month payment to be advertisement subjects (and when the entertainment industry started gimmicks over actually being entertaining), they cut the cord. This history set an understanding in some advertiser’s minds that just don’t work with consumers anymore.

Facebook is a SOCIAL PLATFORM! You can’t just buy ads and get mad when they don’t work. Advertisement money does not equal sale. You need to really work for your business now, and if you pay to advertise on Facebook without having a Community Manager or Service Rep monitoring activity & answering my question, I’ll take my business elsewhere. The ad is to attract users to your content & engagement – YOU (or your employees) are the ones responsible for turning users into customers. This is nothing new.

Many companies still have not recognized what has happened in the economy, which is unbelievable because it’s so simple. If you want to do more business, you need to focus on your existing customers too. A lot of your existing customers are on Facebook. Instead of getting on Facebook with them (where you’re given a huge opportunity to resolve complaints, show new products or even make sales), many companies just want to buy their presence. How does that work? Take 75% of those wasted advertising funds and hire some humans to man the social networks – this is 2012. Business is earned, not bought, and the only way you can do that is with employees. Facebook took off because it made people feel more human, if you’re not bringing humans along with those ads, you’re being foolish.

Ask Ford or Esurance how social is working for them. Both companies reply to ALL customers, fans, prospective-sales and even perhaps future employees. Then take a look at what this translates to in sales. That’s the difference. You’re anti-social on the social network you’re paying to advertise on. You’re doing it all wrong. I’m no marketer, and don’t care for advertising just as the next person, but I’m just advocating for some common sense.

Agreed, the ads are not good for most business. The value to me is not even with the facebook site. to me the value is in having the largest collection of personal information in the world. As advertisers try desperately to effectively target the consumer. Facebook has the ability to target that audience and its not through ads on Facebook. As many of already know the mobile frontier is the now and the future. Its a walking coupon book targeting consumers only with what they want and where they are. That’s Power!

I’m sorry, I have to disagree with you. I don’t represent FB, nor did I purchase any today, but I find your remarks oddly blinkered and out of touch.

I’m the marketing director for an organization that produces a couple dozen major music festivals. For our purposes, Facebook is an unequivocal method by which to directly reach our constituency: music fans, specifically discussing and sharing the music of the artists we are presenting. There is, and has been, a direct correlation from FB ads we ran to tickets sold.

I would not describe our business as “niche” (as Perla suggests), I would describe it as apposite for the medium. With all due respect, who wants to click an ad for American Apparel? Any and everyone knows where to find AA online without clicking an ad. It doesn’t mean your ad had less value because your CTR diminished. It would likely mean the opposite; because your paying for CTR, your impressions will increase. Trying to find a measured consumer response to FB ads for you seems kind of pointless, but for our company and other entertainment/event/social companies, Facebook has proven a valuable resource.

It’s funny that you would say direct correlation–because if you had done that advertising on say, Google or Pitchfork or ANY other major web property in the world, you could have tracked that correlation significantly better than you could have on FB (that is, view through orders as well as click through orders). But you cannot do that on Facebook. They do not allow third party ad serving. Why?